Pedley v Deputy Commissioner of Taxation

Federal Court of Australia (Full Court)|2019-08-08|Before: Abraham JJ

The appeal be dismissed.
The appellant pay the respondent's costs of the appeal, including reserved costs, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 Mr Michael Pedley is a chartered accountant who practises as a tax accountant. He was a director of Stellar Corporation Solutions Pty Ltd (Stellar). In 2014 the Deputy Commissioner of Taxation issued a director penalty notice to Mr Pedley in relation to outstanding tax liabilities for Stellar (Notice). The Notice was for the period 1 August 2013 to 30 November 2013 (Period). The amounts stated in the Notice totalled $213,798. The Notice alleged a failure by Mr Pedley as a director of Stellar to discharge obligations under s 269-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA). Section 269-15 concerns the obligation of directors of a company to ensure that the company pays withholding payments to the Commissioner. The various types of withholding payments are dealt with in Division 12 of Schedule 1. These proceedings concern amounts withheld by Stellar from payments to employees or office holders as described in s 16-70(1) of Schedule 1. 2 A director who is in breach of an obligation to ensure that the company makes a withholding payment is liable to pay a penalty equal to the amount of the company's liability: s 269-20 of Schedule 1. The Commissioner must not commence proceedings to recover a penalty until 21 days after the notice has been given in accordance with s 269-25. Amongst other things, the notice must state what the Commissioner 'thinks is the unpaid amount of the company's liability under its obligation' to make the withholding payment. Certain defences are specified, including that the director took all reasonable steps to ensure that the director has caused the company to comply with its obligation: s 269-35. 3 The effect of the scheme is that a liability can arise on the part of both a company (in this case Stellar) and a director (in this case Mr Pedley) to make payments in respects of the same withholding amount. As to the parallel liability, Schedule 1 deals with the effect upon the director's liability where the company makes a withholding payment to the Commissioner (and vice versa). Amongst other things, it provides in s 269-40(2) that: If an amount is paid or applied at a particular time towards discharging one of the liabilities, each of the other liabilities in existence at that time is discharged to the extent of the same amount. 4 Proceedings were commenced by the Commissioner against Mr Pedley. Eventually, the matter came on for final hearing in this Court. Of the amount specified in the Notice, the Commissioner sought recovery of $159,767.79. The primary judge identified two matters that were raised in answer to the claim: Deputy Commissioner of Taxation v Pedley (No 2) [2018] FCA 2015 at [5]. First, Mr Pedley claimed that all the amounts the subject of the Notice had been paid by Stellar, thereby discharging any liability he had as director. Second, he claimed that the Commissioner had made a decision to allocate amounts received from Stellar in a manner that was invalid by reason of jurisdictional error. The claim of invalidity was raised by way of counterclaim. 5 The primary judge rejected both contentions and Mr Pedley now brings an appeal. For the following reasons the appeal should be dismissed with costs.

The appeal grounds 6 Although Mr Pedley was represented by counsel before the primary judge he now acts on his own behalf. He has filed no written submissions in the appeal. He relies to a considerable extent on the terms of the supplementary notice of appeal filed in these proceedings. The notice of appeal was prepared at a time when he was still legally represented by counsel and solicitors who acted on his behalf before the primary judge. Even so, the grounds stated in the notice of appeal are not a model of clarity and are in a form that should not be emulated. They are discursive, argumentative and obscure. They require some interpretation in an endeavour to extract the point being raised. Appeal grounds should state briefly, but specifically, the grounds relied upon in support of the appeal: r 36.01(2)(c) of the Federal Court Rules 2011 (Cth). The grounds suffer from the additional vice that they appear to be unconstrained by the way the case was conducted before the primary judge. They seek to raise new points without recognising that leave is required for that course to be followed. 7 The grounds are expressed in the following terms: Statutory construction contention requiring the Honourable Court making a finding as to the penalty as a question of fact 1. The Honourable Court in the proper statutory construction of s. 269-20(5) Schedule 1 Taxation Administration Act 1953 (Cth) ('TAA') was required to make a specific finding of fact as to what the amount of the penalty was (specifically the Honourable Court was, in the proper statutory construction of s. 269-20(5), s. 269-20 and Division 269 Schedule 1 TAA, required to make a judicial determination of 'the unpaid amount of the company's liability'): a. Section 269-20 Schedule 1 TAA is a civil penalty provision, or alternatively, a penalty provision; b. Section 269-20(5) Schedule 1 TAA provides that the 'amount of a penalty under this section' is 'equal to the unpaid amount of the company's liability'. c. The Appellant's contended construction of s. 269-20(5) Schedule 1 TAA (as is informed by s. 269-40(2)) (in the context of Division 269) requires the Honourable Court to determine as a question of fact 'the unpaid amount of the company's liability'. Expressed differently, the Respondent's Constitutional Chapter II Executive allocation of payments is per-se irrelevant and so the Honourable Court must make a finding of fact itself, based on the context of the section (see Transcript Day 2 P86 L17-28; Transcript Day 2 P87 L8-10): i. Section 269-20(5) as a matter of the construction of the words of the legislation requires the Honourable Court make a finding of fact as to 'the unpaid amount of the company's liability' for the purposes of giving judgment as the penalty (see Transcript Day 2 P111 L17-44; Transcript Day 2 P87 L8-10); ii. The Respondent's Chapter II Executive allocation rises no higher than what the Respondent 'thinks', as the words in s. 269-25(2)(a) express, 'what the Commissioner thinks is the unpaid amount of the company's liability' [emphasis added] (see Transcript Day 2 P86 L8-15; Transcript Day 2 P87 L8-10); iii. Whilst the unpaid amount has a parallel account in the tax accounts of the company (s. 269-40(2)), the Chapter II Executive's accounting of that amount is not per-se relevant, as the Honourable Court is exercising Chapter III Judicial Power to impose a civil penalty (or alternatively a penalty) and is required to ascertain the amount of the civil penalty itself as part of its own fact finding (see Transcript Day 2 P86 L17-28; Transcript Day 2 P87 L8-10); and iv. If the Respondent's Chapter II Executive allocation was informing s. 269-20(5) as a matter of statutory construction, for s. 269-20(5) purposes (which is not contended), then in cases where that allocation was infected with jurisdictional error, a Court would not be able to enter judgment but would be required to remit the allocation decision; whereas the Appellant's proposed construction does not have this circularity thus giving a more harmonious construction (Transcript Day 2 P97 L31-L34). 2. Further to Ground 1, the Honourable Court in making a specific finding of fact as to what the unpaid amount in s 269-20(5) was, in making that finding in the Chapter III Court from the facts before the Honourable Court required to do so 'from the circumstances of the case as known to both parties': a. Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 60 FLR 355 ('Walsh') at 357-358, provided that 'appropriate can be inferred', where 'It is to be inferred from the circumstances of the case as known to both parties'; as quoted by the Honourable Court at Reasons for Decision ('RD') [69]; b. The Honourable Court ought to have inferred that (i) the communication of 20 May 2014 from the tax agent (RD [48]), (ii) the acknowledgement by the Respondent at the Appellant's request that the Appellant's [unpaid amount] would be 'put on hold now that the ATO has accepted a payment arrangement on the main CAC' on 24 May 2014 (RD [46]) and (iii) the Respondent's telephone note that 'no further action would be taken' in relation to the [unpaid amount] 'as long as ... [the Company] adhere[s] to the terms of the arrangement as DCD liability is part of the company debt' (RD [51]) were facts which pertained to 'the circumstances of the case as known to both parties', all indicative of circumstances to be taken into account as to whether a payment direction was 'or capable of being inferred' (see Mackenzie v Albany Finance [2004] WASCA 301 ('Mackenzie') at [113]); and c. The Honourable Court to the extent that it made a finding contrary to the aforementioned (c.f. RD [71], [72]), with the greatest of respect to the Honourable Court, is said to have fallen into error in focusing on whether specific instructions as to a specific payment were made 'expressly' or 'by implication' (RD [71], whereas application of Walsh called for consideration of 'the circumstances of the case as known to both parties'. Expressed differently, the Honourable Court ought to have 'weigh[ed] up the facts and determine how much ... was paid' having regard to what 'need not be done in express terms but it must be communicated to the creditor or be capable of being inferred' [emphasis added] (see Transcript Day 2 P87 L35-39, P88 L3, citing Mackenzie at [113). Alternative construction and consequential jurisdictional error resulting in the Respondent's Chapter II Executive allocation of the payments 3. Alternatively, to Grounds 1 and 2, the Honourable Court ought to have found that the allocation decision made by the Respondent's officer Mr Simpson on an unparticularised date (RD [35]) ('the Allocation Decision') was infected with jurisdictional error in the form of failing to consider relevant circumstances (or alternatively, some other form of jurisdictional error as pleaded): a. The Appellant pleaded in the relevant pleading before the Court (filed 22 June 2018, 'Cross-Claim', 'CC'): i. The allocation decision was infected with unparticularised jurisdictional error at CC [11; 11.h]; ii. The allocation decision was infected, that 'it did not take into account a required or relevant circumstance' at CC [11 .b.]; and iii. The allocation decision 'did not afford procedural fairness or natural justice to the Defendant as the Plaintiff did not invite the Defendant to make submissions' at CC [11 .f] (c.f. RD [5]). b. On 4 July 2018, the Respondent filed a defence to the Cross-Claim which contained bare denials without particularisation. c. On 11 September 2018, one day prior to trial, the Respondent filed specifically stating for the first time that Mr Simpson had made a reallocation decision on an unparticularised date ('the Allocation Decision') (RD [33]). d. The Honourable Court found that the Respondent's officer Mr Simpson made the Allocation Decision (RD [35]). d.A The Honourable Court found and accepted that Mr Simpson made the Allocation Decision from scratch (RD [35] 'His preparation of MS-11 was a separate and original reconciliation, which he did "from the start". He confirmed, and I accept, he did it "from scratch" even though he knew previous allocations had been done.'). Expressed differently, the work of previous officers had been cast aside, placing Mr Simpson in a position where he was doing over again the allocation, making the decision 'afresh' (RD [35]; see Transcript Day 2 p84 L15-22, 31 ; p103 L31-32; p107 L35-37); e. The Allocation Decision was made sometime after Mr Simpson was allocated to the file, being on or after 1 June 2015 (see RD [34]). f. Prior to Mr Simpson being allocated to the file on or after 1 June 2015: i. The Appellant sent a facsimile on 23 December 2014 which was stored on the Respondent's file and contained the words, 'I disagree with the figure as per the writ, as we made payments off [sic] a significant amount of these debts whilst I was a director for the second time' (RD [53]; Tender Bundle ('TB') p90); and ii. An Executive Officer of the Respondent (Ms Gina Radoslavljevic) (position, 'EL 1'; see TB p207) acknowledged this was a dispute as to payment allocations, writing on 14 May 2015 in a letter to the Respondent, 'You disagree with the figures as per the writ, given that payments of significant amounts should have been made towards these debts... The ATO has reconciled all payments in accordance with the applicable policy and legislation and does not resile from the figures' [emphasis added] (TB p99-100). The Respondent's correspondence was a clear acknowledgment by an executive officer of the Respondent, on the file of the Respondent, that the Appellant sought for reallocation of the payments (c.f. RD [72] first sentence; i.e. with the greatest of respect, notwithstanding any lack of specificity of the Appellant's 23 December 2014 facsimile, it was clearly understood, by the Respondent as a request for a reallocation (TB p99, 100 (the type of allocation being known on the Respondent's records as 'DCD Reconciliation: TB p230); see also Transcript Day 2 P80 L17-37, P81 L16-22). g. The Honourable Court found or accepted that Mr Simpson did not consider the 23 December 2014 facsimile, as per his cross-examination answers, at RD [54], writing, 'Mr Simpson said that ... he had not seen this facsimile before' (c.f. TB p207). h. The Honourable Court found or accepted that Mr Simpson, as per his cross-examination answers, had he considered the 23 December 2014 facsimile he would have reconsidered the allocation, writing at RD [54], 'He did accept that if he had seen the document, he would have reconsidered his allocation ... The usual approach would be to contact the taxpayer and query whether they had other information' (c.f. TB [207). i. The Honourable Court ought to have found that the Allocation Decision was infected with jurisdictional error as was pleaded (prior to the Respondent's one-day-before-trial affidavit disclosing the reallocation), that it 'did not take into account a required or relevant circumstance' (being, that Mr Simpson did not read the relevant file contents); in other words, as was expressed by the Honourable Court at trial, 'So you say it's a failure to take into account something that should have been taken into account.' (Transcript Day 2, P81 L40-43). With the greatest of respect to the Honourable Court, this form of jurisdictional error appears to have been overlooked in the RD (see, RD [61] [the quote at RD [61] is from Transcript Day 2 P81 L37]; see also RD [5]; c.f. CC [11.b.]; see also Transcript Day 2 P82 L18-21. i.A As the Honourable Court had found at RD [33] that Mr Simpson had performed the Allocation Decision 'from scratch' (RD [33] above 3.d.A.), with the greatest of respect to the Honourable Court, Mr Simpson was in the position where it was Mr Simpson who needed to be appraised and take into account relevant circumstances. As the work of previous officers was cast aside (RD [33] above 3.d.A.), previous officers' work in the allocation was no longer of any effect. Here, in this case, these relevant circumstances were clearly recorded on the Respondent's file, that preceded his involvement, in making the Allocation Decision (c.f. RD (71] last three sentences; see Transcript Day 2 p84 L30-34; p94 L 14-23) (see also, 3.h., above). j. In the alternative to jurisdictional error in the form 'did not take into account a required or relevant circumstance', the Honourable Court ought to have found that the Allocation Decision was infected with jurisdictional error (CC [11.h]) (i) that it was infected with unparticularised jurisdictional error, or further, (ii) that it 'did not afford procedural fairness or natural justice' to the Respondent (CC [11.f (c.f. RD [61]). (emphasis in original) 8 Despite its length, ground 1 appears to contend only that the Court could not rely upon what was stated in the Notice or evidence of the Commissioner's assessment of the extent of the taxation liability of Stellar and the Commissioner's allocation of payments received from Stellar. Rather, on the proper construction of s 269-20, where a penalty is sought, the Court must make its own finding as to the amount of the unpaid tax liability of the company concerned (in this case Stellar) for the purpose of determining the amount of the penalty that Mr Pedley was liable to pay under s 269-20 and the primary judge failed to do so. Part of the contention seems to be that the primary judge could not rely upon the exercise of executive power by the Commissioner in allocating payments received from Stellar as a basis for such fact-finding. 9 Ground 2 appears to allege that the primary judge was in error in deciding that certain payments made by Stellar were not required to be applied by the Commissioner to the company's liability to pay the withholding amounts the subject of the Notice. Instead, the primary judge should have inferred from certain evidence that Stellar had paid the amounts claimed (and thereby discharged any liability of Mr Pedley). 10 Ground 3 is very long. It appears to claim that the primary judge erred in failing to find that the decision to allocate payments received by the Commissioner from Stellar in a manner that did not result in a discharge of the liability of Mr Pedley was infected with jurisdictional error, being a failure to take into account a relevant consideration or a failure to afford procedural fairness. 11 In oral submissions, Mr Pedley relied upon the terms of grounds 1 and 2 as expressed in the supplementary notice of appeal and did not seek to make further submissions as to those grounds. As to ground 3, Mr Pedley made submissions by reference to some aspects of the Commissioner's Law Administration Practice Statement numbered PSLA 2011/20 (Policy) and the Taxpayers' Charter published by the Commissioner (Charter). He said the Commissioner had failed to take account of a facsimile communication that he had sent in December 2014 and that failure was contrary to the terms of the Policy and the Charter. He referred to provisions in the Charter that require the Commissioner to (a) treat the taxpayer with courtesy and respect; (b) provide accurate, consistent and clear information; and (c) administer the taxation laws fairly and openly, considering the circumstances of the taxpayer when making decisions.

The Commissioner's case before the primary judge 12 The primary judge summarised the Commissioner's case in the following terms: (1) After the Notice, Stellar paid $555,763.81 to the Commissioner between April and August 2014 (at [15]); (2) The payments were made pursuant to a payment arrangement with Stellar and proceedings against Mr Pedley were not pursued while the arrangement was in place (at [15]); (3) The payments when made by Stellar, were not characterised by any person as being payments of specific debts (at [16]); (4) By reason of the terms of s 8AAZLE of the TAA, the Commissioner is not required to take account of the instructions of an entity as to how to apply payments that it receives (at [21]); (5) The terms of the Policy about how to allocate amounts that are received which provides that 'all payments will be allocated to the earliest (oldest) debts within an account' apply, except where it is a Listed Payment (in which case there are specific rules that apply) (at [14]); (6) Payments were allocated by the Commissioner to the oldest debts of Stellar first (at [16], [25]); (7) The allocation by the Commissioner meant that part of the withholding amounts the subject of the Notice to Mr Pedley were not recorded by the Commissioner as discharged, leaving an amount the subject of the Notice that was still outstanding of $159,767.79 (at [16], [20]); (8) Even if a request had been made by Stellar for a different allocation it was a request that the Commissioner may have (but was not bound to) take into account (at [23]).

Ground 1: The basis for fact-finding by the primary judge 13 Ground 1 proceeds upon the false premise that the liability of Mr Pedley to pay a penalty was to be determined independently of the nature and extent of the liability of Stellar. Section 269-20 imposes a liability in respect of the failure by a company (in this case Stellar) to remit withholding payments. The liability of the director (in this case Mr Pedley) is derivative in the sense that it arises as a consequence of Stellar not meeting its obligations. The identification of the particular obligations of Stellar that have not been met depends upon the allocation by the Commissioner of payments received to particular tax liabilities of Stellar. 14 The primary judge accepted the evidence of Mr Simpson (an officer of the Australian Taxation Office (ATO)) that he reviewed the allocations of payments received from Stellar and did so on his own personal assessment: at [58]. It was Mr Simpson's assessment that resulted in the allocation of the payments received by the Commissioner from Stellar. The primary judge, after reviewing the evidence, also found that there was no basis for a conclusion that the payments made by Stellar under its payment arrangement with the Commissioner were intended to be made by Stellar for the benefit of reducing Mr Pedley's parallel liability, nor was any such request made at any time: at [72]. His Honour concluded that none of the payments for which the Commissioner sought recovery were payments previously made by Stellar in reduction of Mr Pedley's liability: at [73]. 15 In reaching the above conclusions, the primary judge recounted the evidence of Mr Simpson by way of affidavit that after certain payments, the debt of Stellar the subject of the claim based on the Notice was $159,767.79: at [31]. The primary judge dealt with cross-examination of Mr Simpson and rejected the attempts to discredit aspects of his evidence. His Honour should be taken to have found on the basis of the evidence of Mr Simpson that the liability of Stellar the subject of the Notice was $159,767.79. The manner in which his Honour dealt with the quantum reflects the fact that there was no issue about the amounts involved: at [1]. Rather, the issues before the primary judge focused upon the allocation of the payments made by Stellar. 16 Even so, on the unchallenged findings of the primary judge, Stellar had not paid withholding payments the subject of the Notice totalling the amount of $159,767.79. This was a finding based on the evidence of Mr Simpson which in turn was based on the records of the Commissioner received into evidence concerning the tax liabilities of Stellar and the allocation of Stellar's payments made by Mr Simpson. There was no need for a further express finding that the amount of Stellar's liability was the amount of the penalty. That consequence flowed from the application of the terms of s 269-20. 17 Further, there was in evidence before the primary judge a running balance account of Stellar that recorded a debit balance of $159,767.79 as at 3 March 2017 and a certificate by the Commissioner under s 255-45 of Schedule 1 that the amount was a debt due and payable by Mr Pedley as at that date. Section 255-45 provides that such a certificate is prima facie evidence of the matter in a proceeding to recover an amount of a tax related liability. There was no evidence of further payments by Stellar after that date. Therefore, the amount was separately established by that evidence. The ground of appeal identifies no evidence relied upon by Mr Pedley to displace the above evidence. 18 For those reasons, ground 1 is without merit.

Ground 2: Alleged implicit direction as to where payments by Stellar should be applied 19 As noted above, s 8AAZLE of the TAA provides that the Commissioner in receiving a payment of a tax debt of an entity is not required to take account of any instructions of any entity. As a result, the Commissioner is under no obligation to allocate or appropriate payments received in a particular way, and is not obliged to apply them first in a manner that would reduce the liability of a director under a director's penalty notice: Deputy Commissioner of Taxation v Falzon [2008] QCA 327 at [30]-[38] (Fraser JA, McMurdo P and Philippides J agreeing). The primary judge so found: at [67]. His Honour was correct in doing so. 20 Therefore, the appeal ground goes nowhere. 21 The decision in Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) [1982] FCA 92; (1982) 60 FLR 355 does not assist Mr Pedley. In that case, Lockhart J dealt with the common law principles as to the proper appropriation of a payment by a debtor to a creditor. His Honour summarised the law in the following terms at 357: A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt. If there is specific appropriation by the debtor cadit quaestio. In the absence of a specific appropriation it is a question of fact whether there was any appropriation by the debtor. 22 His Honour went on to recognise the possibility that an appropriation by a debtor to a creditor may be inferred 'from the circumstances of the case as known to both parties'. An undisclosed intention on the part of the debtor was insufficient. It was necessary to examine the relevant circumstances surrounding the payments in question: at 358. The common law also has principles concerned with the application of payments where there is a running account, and payments are to be applied in reduction of the overall balance from time to time: see, for example, Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483. 23 However, the primary judge was not concerned with the application of common law principles. His Honour was dealing with the allocation of payments made by Stellar in the discharge of statutory obligations. In that context, it was necessary to bring to account any statutory provisions as to the manner in which payments in discharge of those obligations were to be applied. Further, it was necessary to bear in mind that the Policy itself had no statutory character. Rather, the Policy was an instrument that provided guidance to officers allocating payments. It was not the source of the authority to make a decision as to the allocation of the payments received by the Commissioner from Stellar. It was not an instrument that governed the allocations in the sense that a decision that did not conform to the Policy did not conform to the law or was invalid or ineffective. It was the kind of instrument that regulated practices and no more: Bilborough v Deputy Commissioner of Taxation [2007] FCA 773; (2007) 162 FCR 160. The lawfulness of those practices was to be adjudged by reference to the statutory source of the power being exercised when a particular payment was allocated. 24 However, even accepting the false premise on which the appeal ground is based as correct (namely that the Commissioner was obliged to apply common law principles in allocating payments received from Stellar), on the unchallenged findings of the primary judge, the inference contended for is not established. 25 The appeal ground relies upon three factual matters said to give rise to the inference that there was an allocation by Stellar of its payments, first, in discharge of amounts the subject of the Notice. Each was considered by the primary judge. However, the appeal ground fails to place those matters in context. On the evidence and the unchallenged findings of the primary judge, the chronology is as follows: (1) The Notice was issued on 21 January 2014 (at [2]); (2) A statutory demand was issued to Stellar which required the payment of $776,210.88 (at [64]); (3) In early April 2014, following receipt of the statutory demand, a payment arrangement was negotiated by Mr Pedley as the accountant and director of Stellar (at [64]); (4) On 4 May 2014, the Commissioner commenced proceedings in the District Court of Western Australia against Mr Pedley to recover the amount the subject of the Notice (at [2]); (5) On 8 May 2014, a payment arrangement was activated for Stellar but not on the parallel liability of Mr Pedley the subject of the Notice (at [46]); (6) On 20 May 2014, Aspect Accountants sent a letter to the ATO on behalf of Mr Pedley asking whether the District Court writ had been put on hold as a payment arrangement had been granted to Stellar (at [48]); (7) On 24 May 2014, the Commissioner confirmed that a payment arrangement had been activated for Stellar and that as the director liability was a parallel debt 'any legal action on the directors of the company will be on hold whilst the payment arrangement is active' (at [49]); (8) There was no statement from Stellar that the payments under the payment arrangement were to be made in respect of the liability the subject of the Notice; and (9) On 23 December 2014, Mr Pedley sent a facsimile to the Commissioner in which he referred to the two periods where he had been a director (which were not confined to the period the subject of the Notice). Amongst other things, it said that he believed that he should not be held responsible for periods he was not a director. It also said that significant payments off the debt of Stellar had been made while he was a director and that he had a guarantee from the continuing director to make good on payments and pay off the debt. It also said that Mr Pedley had no way of knowing if the amounts were being paid to the ATO by Stellar (at [53]). 26 The payment arrangement was made on behalf of Stellar in respect of liabilities and without any reference to consequences for Mr Pedley's liability. Importantly, the consequences for the claim against Mr Pedley were raised separately and subsequently. It appears that it was expected that Stellar would pay off the whole liability. The terms of the facsimile of 23 December 2014 are inconsistent with there being any implicit communication with the Commissioner or the ATO about payments by Stellar first being applied to meet the obligations the subject of the Notice. Indeed, they are inconsistent with there being any appropriation (expressed or implied) as to how the amounts are to be applied. If such an arrangement had been contemplated in any way you would expect it to be included in a communication of the kind made by the facsimile. In the chronology of events, it was not reasonably open to infer that there had been a direction from Stellar about appropriation of the payments first to be made to the liabilities the subject of the Notice issued to Mr Pedley. No error has been demonstrated in the reasoning of the primary judge in that regard. 27 Further, Mr Pedley was a director of Stellar during the periods 28 June 2013 to 15 July 2013 and 26 September 2013 to 30 April 2014. The amounts the subject of the Notice related to the non-payment of withholding amounts by Stellar for the period that included 1 to 31 August 2013 and 1 September to 30 September 2013 covering a period when Mr Pedley was not a director of the company. However, that does not mean that he has no liability arising pursuant to s 269-20. By virtue of s 269-20(3), upon Mr Pedley becoming a director of the company again as from 26 September 2013, he began to be under an obligation to ensure that the company either complied with its obligation to pay its tax liabilities or otherwise to cause the company to go into liquidation or into voluntary administration. By virtue of his failure to do so he became liable to a penalty equal to the non-payment of the amount of Stellar's obligations for the periods of which he was not a director. 28 Therefore, the appeal ground should be dismissed.

Ground 3: Jurisdictional error 29 The primary judge recorded the acceptance by Mr Simpson that any appropriation made by Stellar in respect of the payments would have been taken into account. However, as we have said, the primary judge found that there was no such appropriation. The facsimile of 23 December 2014 was not an appropriation. Indeed, as stated above, it was notable for the fact that it contained no reference to any appropriation of the amounts paid by Stellar to the holding payments the subject of the Notice. 30 In his oral submissions Mr Pedley did not seek to characterise the facsimile as an appropriation. Rather, he said the facsimile disputed the amount in the Notice and it had not been taken into account even though it was relevant to his liability. 31 The submission made fails to recognise that Mr Pedley's liability was derivative in the sense that it was the extent of Stellar's tax liabilities that remained unpaid in the period when he was a director that established the amount of any penalty he had to pay. The primary judge found that Mr Simpson allocated the payments received from Stellar without regard to the contents of the facsimile of 23 December 2014. However, the primary judge also found that the payments referred to in the facsimile were taken into account by Mr Simpson when he did the allocations. Importantly, there was no evidence that a particular request was made by Stellar as to how the payments should be allocated. 32 In those circumstances, there was no request to which the Policy might apply and no basis for a complaint that the Charter had been breached by the Commissioner in the approach that was adopted in dealing with the payments made by Stellar. Even if such a request had been made it would not have been binding by reason of s 8AAZLE. It is trite that there is no jurisdictional error demonstrated on the basis of a failure to take into account a particular matter unless it is demonstrated that the matter was required to be taken into account in order for there to be a valid exercise of statutory power. It follows that this aspect of ground 3 is devoid of merit. 33 The separate complaint that the primary judge should have found that the decision was 'infected' with 'unparticularised jurisdictional error' or did not afford procedural fairness or natural justice to Mr Pedley was not raised before the primary judge. In any event, it is misconceived. It was not for Mr Pedley to make any appropriation request. It was a matter for Stellar to do so. For reasons already given, Stellar did not make such a request. Further, in circumstances where no request as to appropriation was made and if a request had been made the Commissioner was not bound to give effect to any request as to how payment might be appropriated (by reason of the terms of s 8AAZLE) there was no obligation on the part of the Commissioner to invite submissions as to appropriation before deciding how to appropriate the payment. Even at common law, a debtor who does not appropriate a payment at the time it is made does not retain a right to do so at a later time. Rather, the right to determine where to appropriate the payment then falls to the creditor: Falzon at [50] and Mackenzie v Albany Finance Ltd [2004] WASCA 301 at [113] (EM Heenan J, Le Miere J agreeing). In that context, the TAA in providing that the Commissioner was not required to take account of an instruction does not create an attendant obligation to afford procedural fairness before appropriating a payment in circumstances where there had been no appropriation by the taxpayer at the time when the payment was made. 34 It follows that there is also no merit in this further aspect of ground 3.

Conclusion and orders 35 For the above reasons, the appeal must be dismissed with costs. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Davies, Colvin and Abraham.

Tax Administration Act 1953(Cth)

Taxation Administration Act 1953(Cth)s 8AAZLE, Schedule

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